Proposed Housing Rule May Mean You Won’t Be Able to Afford Your Dream Home — Dollars and Sense

If you had to put 20 percent down to buy a house, would you be able to do so?

A new study from the Center for Responsible Lending at the University of North Carolina says most people wouldn’t — and it could have dramatic and negative effects on the struggling housing market.

Some federal agencies are considering the rule to help avoid another mortgage debacle like the one that led to roughly five million foreclosures in the past few years. But since the average home in the US costs about $273,000, that would mean prospective buyers would need nearly $55,000 as a down payment to qualify.

The new study says that while this would certainly result in fewer defaults, enforcing such a mandate would nonetheless “would be a mistake for [both] business and consumers.”

Requiring a 20 percent down payment, the report states, would push 60 percent of buyers out of the running for many less expensive mortgages, though many might still qualify for higher-cost loans. In particular, African-American and Latino buyers would be hurt the most, with up to three-quarters of them unable to qualify for the more attractive mortgages requiring 20 percent down.

The report goes on to say the foreclosures avoided by such a rule wouldn’t be worth it: “We find that imposing 80 percent loan-to-value (LTV) ratio requirements on qualified mortgages (QM) would exclude 10 otherwise creditworthy borrowers to prevent one foreclosure.”

But other analysts say it’s time to enact the more rigorous standards. Dean Barker, co-director for the Center for Economic and Policy Research, told the Huffington Post, “[We] just had a horrible housing bubble burst and wreck the economy for a decade in large part because banks were able to pass on junk mortgages at no risk. This is an incredibly modest provision that will have no impact on creditworthy borrowers.”

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